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Running Head: UNIT 2 ASSIGNMENT 1 Courtney Baker BU 224: Microeconomics Unit 2 Assignment Purdue Global University January 12, 2019
Running Head: UNIT 2 ASSIGNMENT 2 Comparative Advantage When looking at the business of international trade, understanding the concepts of both comparative advantage, absolute advantage, and relative marginal opportunity cost is essential. In the United States, comparative advantage has affected the market and economy and created advantages and disadvantages among workers and consumers. According to the textbook, “A country has a comparative advantage in producing a good or service if its opportunity cost of producing the good or service is lower than other countries” (Krugman & Wells, 2015). While comparative advantage is relevant in world trade, absolute advantage is important to understand, too. Absolute advantage refers to the capacity in which a company produces a larger quantity of product than other competitors (Corporate Finance Institute, 2017). While third world countries may obtain the absolute advantage, the United States holds the comparative advantage. Third world countries may be able to export products quicker and with a lower rate, but the United States specializes in exporting more expensive products. Importation and exportation also include the idea of marginal opportunity cost, which is the process of understanding and analyzing the effect of producing additional units of a product on the overall cost of a business. This notion also focuses on the opportunities that companies may need to give up in order to produce more of a specific product (Study.com, 2018). Due to innovation and expansion of international trading, one of the most controversial topics in current global business concerns the act of importing and exporting goods and the affect it has on American workers, American consumers, and foreign workers. Local manufacturing facilities in the United States have been closed and then re-opened in countries such as Asia, simply because the cost of producing the good or service is lower in third world countries. International good and service trading became more popular in recent years, but also produced a deficit in some respects. Beginning in October of 2016 and ending in October 2018, the United
Running Head: UNIT 2 ASSIGNMENT 3 States Census Bureau conducted a study that looked at the statistics of the international trade in goods and services. Figure 1 . Goods and Services Trade Deficit. Adapted from “Latest U.S. International Trade in Goods and Services Report” by U.S. Census Bureau, 2018. Retrieved from From this research, it was found that the October goods and services deficit in 2018, which was measured to be at $55.5 billion, was the highest deficit since 2008 which was a deficit of $60.2 billion (Kafchinski, 2018). A deficit occurs when a country imports more goods or services than it exports (Amadeo, 2017). Based off this data, continued importation and acceptance of foreign made goods into U.S. markets may lead to a higher loss and deficit in

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